Analysing Core Inflation in India: A Structural VAR Approach

Ashima Goyal and Ayan Kumar Pujari

MPRA Paper from University Library of Munich, Germany

Abstract: Effective inflation targeting requires careful selection of the inflation target. It is necessary to leave out noisy elements, which monetary policy cannot control, but this exclusion should not be done in an ad hoc way. Rather core inflation should be determined from the structure of the economy. This paper estimates core inflation for India using Structural Vector Autoregression (SVAR). This method is based on both theory and the structure of the economy. Monthly data for wholesale price index (WPI) and index of industrial production (IIP) has been used, covering a long time span from January 1971 to July 2004. We analyze the impulse responses of inflation and output, test for several time series properties of core inflation and carry out a number of Granger causality tests between headline inflation, core inflation, output and a monetary aggregate.

Keywords: Inflation Targeting; Core Inflation; Structural VAR (search for similar items in EconPapers)
JEL-codes: C32 E31 E52 (search for similar items in EconPapers)
Date: 2005
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Published in ICFAI Journal of Monetary Economics 2.3(2005): pp. 76-90

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Journal Article: Analyzing Core Inflation in India: A Structural VAR Approach (2005)
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